US equities closed lower in June's final session, with the S&P down 0.4% and the Nasdaq 100 down 0.7%, despite positive inflation data hinting at potential Fed rate cuts. Communication services shares fell, while energy and real estate gained. In Europe, the Stoxx 50 dropped 0.2%, continuing a four-day decline amid concerns over upcoming French elections and Eurozone inflation, with tech shares outperforming but L’Oreal and Airbus facing significant losses. For June, the S&P rose 2.9%, the Nasdaq 4.9% and the Dow Jones 1.1%, while the Stoxx 50 index retreated by 1.8%.

Summary for 01.07.2024

Asian equities were flat-to-low on Monday amid mixed signals on Chinese business activity and uncertainty over US interest rates. Chinese indexes fell due to conflicting PMI data, while broader Asian markets retreated. Japanese shares rose slightly despite a downward GDP revision, which may prolong low interest rates.

European equity markets are poised for a strong start to the second half of the year after the first round of voting in France put the far-right National Rally party ahead, but with a smaller share than some polls had projected, easing concern about further strains on the country’s public finances. Elsewhere, US equity markets are also expected to open higher on Monday, with futures for the S&P 500, Nasdaq 100, and Dow Jones showing gains as investors anticipate insights from Federal Reserve officials and key labour market data this week.

Oil prices rose this morning, benefitting from a softer dollar and increased bets on Federal Reserve rate cuts following recent inflation data. However, concerns over fragile business activity in China limited further price increases. Both Brent and West Texas Intermediate contracts experienced significant gains in June due to geopolitical tensions in the Middle East and Russia, which heightened fears of supply disruptions and increased the risk premium on crude.

In the first round of the French elections, Marine Le Pen's RN party secured approximately 34% of the vote, surpassing leftist and centrist rivals. Following closely behind was the left-wing alliance with significant support, while President Macron's La République En Marche party trailed further. In the UK, the Labour Party is anticipated to win the upcoming general elections, aiming to address economic stagnation.

Chinese manufacturing activity exceeded expectations in June, with the Caixin Manufacturing PMI rising to 51.8, indicating strength in smaller, private businesses. This contrasts with government data showing a contraction, with the official PMI below 50 for the second consecutive month. Despite ongoing expansion, challenges remain due to insufficient market confidence and effective demand.

The Judo Bank Australia Manufacturing PMI fell to 47.2 in June, indicating the fastest deterioration since May 2020. Production, employment, and purchasing activity declined due to fewer new orders. Despite easing cost inflation and positive future sentiment, confidence hit a seven-month low amid rising costs and competition concerns.

The Bank of Japan's Tankan index for large manufacturers rose to +13 in Q2 2024, the highest in two years, surpassing expectations. Gains were notable in textiles, chemicals, pulp & paper, and petroleum & coal, while iron & steel, food & beverage, and production machinery saw declines. Optimism remains for Q3 with a forecast of +14.

In May, the US personal consumption expenditure price index remained unchanged from April, the lowest in six months, with core inflation at 0.1%. Personal spending rose 0.2%, below forecasts, driven by increases in healthcare, housing, and air transportation, while energy prices fell significantly. Real consumption expenditure rose 0.3%.

Boeing Co has agreed to buy back Spirit Aerosystems Holdings Inc for $4.7 billion in an all-equity deal, ending speculation amid a new safety crisis. The move reunites Boeing with Spirit, previously spun off in 2005, amid ongoing regulatory challenges following 737 MAX safety issues.

Lockheed Martin has secured a $4.5 billion multi-year contract from the US Army for its Patriot Missile air defence system. The deal includes 870 PAC-3 MSE missiles and related hardware, crucial for Ukraine's defence against Russia amid ongoing conflict. Each PAC-3 MSE interceptor costs approximately $4 million.

In May, Apple's smartphone shipments in China surged nearly 40% year-over-year, following a rebound observed in April. Data from the China Academy of Information and Communications Technology (CAICT) indicated that foreign-branded phone shipments increased by 1.425 million units to 5.028 million, contributing to a 16.5% rise in overall phone sales in China to 30.33 million units.

Lufthansa CEO Carsten Spohr highlighted severe aircraft delivery delays, estimating these issues could cost the airline around €500 million annually. With orders for 250 new planes from Airbus and Boeing scheduled through 2029, ongoing delays and maintenance groundings continue to impact operations significantly.

Nike plans to introduce new sneakers priced at $100 or less globally in a bid to revive sales amidst competition from Adidas and others. The move follows a significant drop in Nike's shares after reporting a surprise sales decline, attributed in part to sluggish consumer spending and increased competition in the market.

Oppenheimer analysts raised their price target on Apple from $200 to $250, citing optimism surrounding the introduction of Apple Intelligence, likening it to a revolutionary product akin to the first Macintosh. They anticipate Apple's AI strategy will accelerate revenue and EPS growth, though launch delays pose a risk.

Rosenblatt downgraded Alphabet from Buy to Neutral, citing transitional risks. These include potential impacts of AI on search ad revenues, competition from Bing, and the shift of ad revenue to retail media networks influenced by Amazon. They also flagged concerns over increased capital expenditures for AI and lowered Alphabet's price target from $182 to $181.

BMO Capital Markets upgraded SAP SE to "Outperform," setting a new price target of $237, up from $218. The upgrade reflects optimism in SAP's transition to cloud solutions, expecting substantial revenue growth driven by migrations to S/4HANA Cloud amid upcoming support deadlines. The target implies an 18% potential return based on current levels.

Bernstein initiated coverage of Stellantis with a "Market Perform" rating and a €22 ($23.50) price target, indicating an 18.7% potential increase. They anticipate a challenging 2024 due to market normalisation, US pricing pressures, and high inventory levels. However, they foresee growth returning in 2025, driven by strategic initiatives and margin improvements in North America.

BofA Securities highlighted Lamborghini's strong financial performance under Volkswagen's Audi Group, with a 27% EBIT margin in 2023 and sales nearing 10,000 units. They suggest Lamborghini's strategic importance and potential value could significantly boost Volkswagen's shares by €30 to €70 per share, despite its current undervaluation.

Air France-KLM SA saw its shares decline over 4% on Friday after Barclays Bank downgraded it from "overweight" to "equal weight" with a reduced price target, citing lowered EBIT forecasts for the current and next fiscal years. Analysts expressed concerns over French legislative election outcomes potentially increasing labour costs and impacting industrial relations, while also highlighting challenges at Schiphol Airport and issues in the long-haul network.

JPMorgan's mid-year outlook warns of challenges ahead for equity markets, particularly concerning extreme momentum among large-cap shares. They anticipate potential downside with a S&P 500 price target of 4,200, citing unsustainable earnings growth and broader macroeconomic uncertainties. The firm advises diversifying into defensive sectors amid expectations of market volatility and geopolitical risks.

Wells Fargo's guidance for the next 18 months emphasises buying large-cap equities on market dips, locking in yields with longer-duration bonds amid elevated interest rates, and investing in growth sectors like energy and industrials. They advocate diversifying with alternative assets and hedging risks through geopolitical plays and inflation-hedging commodities.

The focus this week will be on the US payrolls report and FOMC minutes, alongside ISM PMI, JOLTs, and trade data. In Europe, elections in France and the UK are key, while inflation data from several countries and economic indicators from Germany, Canada, Japan, and China will also be significant.

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